Tuesday, August 30, 2011

This research is interesting. Some math theorists at ETH, a science & technology university, in Switzerland took a look at over 600,000 "economic actors" to see what kind of interlocking ownership ties there were and how this related to the ultimate sources of control. Of course, the story that we're all told is that the market responds to innovation and entrepreneurship, which suggests a fairly dispersed distribution of ownership and control as newer, more innovative companies come on-stream and succeed by virtue of the unassailable logic of the market. Uh, not quite.

Diagramming the relationships between more than 43,000 corporations reveals a tightly connected core of top economic actors. In 2007, a mere 147 companies controlled nearly 40 percent of the monetary value of all transnational corporations, researchers report in a paper published online July 28 at arXiv.org.

As you can see from the diagram above, the ownership pattern looks something like a bow tie, with a tight concentration in the centre and then a big gap before reaching the outer edges with all the rest of the companies. Most of us have always known this but it's interesting to see this demonstrated in this way. 150 years ago Marx was already talking about the tendency for capitalism to create larger and larger corporations in a process he called the concentration and centralization of capital. That tendency continues apace.

And even though the status of many players in the analysis has changed drastically since 2007 (now-defunct Lehman Brothers is a key element of the core), the analysis shows that ownership is becoming increasingly concentrated and increasingly transnational, says Gerald Davis of the University of Michigan in Ann Arbor.

In other words, companies are becoming "too big to fail" but also "too big to bail out" a problem that up till now had really only plagued larger countries. We have already experienced the dangers of this tight knit network of concentrated control in 2008 when the collapse of one investment bank, Lehman Brothers, set off a chain reaction that threatened to bring down the global financial system. And given their inter-connectedness, how long can it be before another domino effect takes place - one which countries are unable to step in to halt? Brandy Aven of the Tepper School of Business at Carnegie Mellon in Pittsburgh has a colourful way of describing the effect:

“Imagine a disease spreading,” says Aven. “If you have a high school where everyone’s sleeping together and one person gets syphilis, then everyone gets syphilis.”

If capitalism is like syphilis, we need some anti-capitalist antibiotics.